Foreclosure Forecast: What Direction Are They Going? Up Or Down?
Posted by David Schneider | December 9, 2007

Amongst the dropping prices of homes and mortgages, foreclosures joined the downward spiraling market. During these times of decreasing housing demand, it's unfortunate to think that people are locked in a financial predicament, left to foreclosure. Unfortunately, this trend does not appear to be changing course in the near future.

Foreclosure Forecast — What's Happening?

Nationwide foreclosures in 2007 have increased a monumental 42 percent since 2005. There have been 1.2 million foreclosure filings this year. Amazingly, this is not a record high but this does raise speculations that the future holds a worse fate for foreclosures.

No one anticipated this trend of foreclosures. Some experts did not predict the foreclosures, since national economic conditions offered no signs. The stock market is doing fine and employment numbers are steady.

However, David Lereah, chief economist for the National Association of Realtors, said that economists calculated that foreclosures would occur in response to the decreasing housing market. He further pointed to markets that contain unsustainable price appreciations.

Characteristics of Recent Foreclosures

In 2003, 30-year fixed rate loans were at their lowest, but the trend was on adjustable rate mortgages (ARMs). The buyers immediately went for the lower rates from the adjustable rate mortgages. Now that the introductory period is over, the interest rate immediately goes to the market rate, continuing to adjust every year. Those buyers are stuck making ends meet to afford the new mortgage.

Along with the teaser interest rates, buyers also chose to purchase enormously expensive homes. Many believed that buying a more expensive home would offer a greater appreciation. Once the ARM would reset, they would have the ability to refinance for a lower fixed rate with a longer period.

Now these home owners have new interest rates for homes they originally could not afford. Many jumped to sell their properties and others tried to refinance. However, since the housing prices have gone down, current value does not match original value. The buyer loses money instead of making money and selling the home will no longer answer the financial problem. This leads many of homeowners to unfortunate foreclosure.

Foreclosures and the Future

Experts predict that 2008 will be one of the worst years for foreclosures. They are mainly referring to sub-prime mortgage loans. During the next two years, a projected amount of 1 million homes will be lost due to foreclosures.

John Robbins, chief executive officer of American Mortgage Network, explains that most of the foreclosures will occur in Michigan, Nevada, Arizona and Ohio because of the unemployment numbers and appreciating home prices. If housing prices continue to fall to 20 percent, states like Florida, New York, California and Texas, may lose 2 million homes to foreclosure through 2009.

Along with sub-prime and ARM mortgages, interest-only and negative amortization mortgages may lead the buyer into potential financial problems. There is no way to correctly predict if a property will appreciate, so buying within your means is the best way to approach the housing market.